Chasing Investment Returns -- The $mart $kills Asset Allocation Game

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An educational and entertaining game to teach his own teenage children the importance of diversification through asset allocation.

Kids, Wealth, and Consequences: Ensuring a Responsible Financial Future for the Next Generation

Current and future investors who do not understand the principles of asset allocation are bound to make the same mistakes most people make when investing: attempting to chase returns and call stock-market turns.

Richard Morris co-author (with Jayne Pearl) of Kids, Wealth, and Consequences: Ensuring a Responsible Financial Future for the Next Generation (Bloomberg, a Wiley imprint, 2010), created the educational and entertaining game to teach his own teenage children the importance of diversification through asset allocation. Morris explains, “Current and future investors who do not understand the principles of asset allocation are bound to make the same mistakes most people make when investing: attempting to chase returns and call stock-market turns. This causes many inexperienced investors to ‘sell low and buy high’—the opposite of a profitable strategy.”

The $mart $kills Asset Allocation is best played with in a group of teens, with or without adults. Morris notes, “Without subjecting them to a lot of charts and graphs, we wanted to impart to new investors the wisdom of taking a long-term view on investing and the consequences of chasing investment returns. To make the game fun, we also included a bit of family competition.”

Morris points to a study by Prof. Danny Yagan of Harvard University in August 2010 that found that the while the S&P 500 index rose 18% from mid-2006 to mid-2007, and $134 billion flowed into equity mutual funds in 2007, the S&P index then declined 15% from mid-2007 to mid-2008, with $150 billion flowing out of equity mutual funds in 2008.

The $mart $kills Asset Allocation Game is experiential. Each player receives some facts about several investment managers, each representing a different asset class. Then each player decides on an allocation that will last two years, which represents one round of the game. A designated game administrator (such as a parent or financial advisor) enters each player’s asset allocation onto a spreadsheet, showing how well or poorly their investments performed over the two years. The game provides a simulation of actual return data for a real 20-year time period and then leads a discussion about each player’s results.

“The real learning comes in-between rounds, when all of the players tell each other what they did and why they did it,” says Morris. “After playing 10 rounds of the game, a simulated 20 years, my own kids learned how chasing returns in one period did not produce good results in the next period, and how sticking to one asset allocation yielded the best overall gains.”

Kids, Wealth, and Consequences helps affluent parents and their advisors understand how affluence affects children’s future success, happiness and motivation. The book explores everything from how and when parents should talk to their children about the often-uncomfortable topic of money to what affluent families can learn from the economic meltdown about spending, saving and investing to help them better prepare themselves and their children to survive in any economic environment.

Richard Morris is an adjunct professor at the Lake Forest Graduate School of Management and is principal of ROI Consulting, helping family owners expand and pass down their business to subsequent generations. Previously, he worked at his family's 80-year-old privately held company, Fel-Pro Incorporated, managing Marketing and then Acquisitions, and serving on the Board of Directors until its sale in 1998.

Jayne Pearl is a journalist and entertaining speaker, focusing on family business and financial parenting. She is author of Kids and Money: Giving Them the Savvy to Succeed Financially (Bloomberg Press) and has co-authored or ghost-written ten other books. Jayne began her career at Forbes and was former senior editor of Family Business magazine, to which she has contributed for 20 years.